Article

The Business of Being Better: How Management Principles Can Improve Hospital Operations

The Business of Being Better: How Management Principles Can Improve Hospital Operations
FINANCIAL

Article highlights:

  • Laboratorians and other healthcare professionals continue to look to the business world for solutions to operational challenges
  • Applying business principles to hospital lab operations can help you reduce healthcare costs and prevent medical errors
  • Transitioning to a patient-centric model of operations requires the skillful application of proven business solutions

Several years ago, a professor was teaching a course on supply chain management at a top US business school. On the first day of class, he asked his students to introduce themselves and talk a little about what they did for a living.

As the introductions proceeded, the professor heard something that struck him as remarkable. Among the usual smattering of procurement managers, inventory control specialists, and production supervisors was a gentleman who identified himself as a hospital emergency room physician.

The professor held up his hand and paused the introductions. “Wait a minute,” he said, pointing to the physician. “I think I can figure out why everyone else is taking this course. But what are you doing here?”

Searching for operational solutions

 

That professor was Wally Hopp, PhD, Senior Associate Dean for Faculty and Research at the Ross School of Business at the University of Michigan. The answer the physician gave him was one Dr. Hopp began to hear again and again as an increasing number of healthcare professionals started showing up in his classes.

All were looking outside of medicine for solutions to help them manage the complexity of their operations. They ranged from physicians struggling to dissolve dangerous bottlenecks in the ER to hematologists searching for ways to prioritize daily blood draws for timely discharge decisions. These healthcare professionals had been talking to people in various fields, including operators of nuclear plants, air traffic controllers, and auto industry executives–all searching for actionable solutions.

However, the leap from these industries to healthcare was too great. They weren’t getting the answers they needed. Dr. Hopp resolved to do something about that.

Principled partners

 

In partnership with Bill Lovejoy, PhD, Raymond T. Perring Family Professor of Business Administration at the Ross School of Business, Dr. Hopp endeavored to help these healthcare professionals. The 2 colleagues began applying business principles to operational challenges in hospitals. This led to process improvements in ERs, pathology labs, radiology departments, and other areas.

It was a huge success, but Dr. Hopp and Dr. Lovejoy wanted to lend their expertise to many more institutions. To do so, they needed to package their knowledge into a systematic framework that anyone could access.

So they wrote a book.

Wally Hopp, PhD

Senior Associate Dean for Faculty and Research; Herrick Professor of Business, Ross School of Business

University of Michigan

A shared value

 

As they worked on their book, Hospital Operations: Principles of High Efficiency Health Care, Dr. Hopp and Dr. Lovejoy asked themselves if they even had any business writing about health care, given their backgrounds. The answer they came to was “yes.” Because while health care and business are different in many respects, they share a common purpose: creating greater social value.

As Dr. Lovejoy explains: “Other people see business as being connected to a sometimes unsavory pursuit of profits only. Most people don’t understand that the monetary transfers are just incidental to the theory of business. It’s all about creating social value.”

The crucible of competition

Hospital labs can learn a lot from the hyper-competitive world of business. Under constant pressure to increase efficiencies in a free market, industries must innovate to survive. The processes they develop under such conditions may not arise naturally in the comparatively insulated world of health care—but can be extremely beneficial there.

Bill Lovejoy

Professor of Operations Management

University of Michigan Ross School of Business

Benefits beyond the bottom line

 

Applying business principles to hospital operations can increase efficiencies and turn high costs around. Use the sliders on the examples below to learn more about these benefits.

Reference: 1. Hopp W, Lovejoy W. Hospital Operations: Principles of High Efficiency Health Care. Upper Saddle River, NJ: FT Press; 2013.

The industrial evolution

Healthcare is ripe for the strategic application of business principles to operational challenges. One reason, according to Dr. Hopp and Dr. Lovejoy, is that healthcare is transitioning from a siloed industrial phase to an integrated, customer-centric one. It is an evolution most businesses have already gone through.

Wally Hopp, PhD

Senior Associate Dean for Faculty and Research; Herrick Professor of Business, Ross School of Business

University of Michigan

Three high-efficiency principles

 

Dr. Hopp and Dr. Lovejoy detail 3 business principles that can be applied to hospital operations to increase efficiency. Read through the following descriptions, and consider how you might apply these principles in your lab.

 

Principle #1: The physics of process flow

As hospital laboratorians, you’re constantly managing flows: the flow of specimens through the lab; the flow of reports back out to physicians, and the flow of patients themselves. All of these flows are governed by physics. When properly understood, physics can be managed to deliver more efficient quality care.

Bill Lovejoy

Professor of Operations Management

University of Michigan Ross School of Business

Principle #2: Bring value to your customer

 

Dr. Jeff Myers, Director of Anatomic Pathology and MLabs and Vice Chair of Clinical Affairs and Quality at the University of Michigan, collaborated on Hospital Operations. He stresses the importance of laboratorians adhering to a fundamental business axiom: bring value to your customer—as defined by your customer, not you. Which, in the case of hospital labs, is the patient.

Jeffrey Myers, MD, PhD

Vice Chair for Clinical Affairs & Quality; Director, MLabs

University of Michigan Health System

Principle #3: Create positive lean

 

A principle that Dr. Hopp and Dr. Lovejoy have been working on passionately is the notion of creating positive lean. What this means is that an organization makes a conscious effort to create a work culture that is both efficient and motivational. Instead of advancing efficiencies at the cost of employee morale, those forces actually facilitate greater engagement under a positive lean model.

Wally Hopp, PhD

Senior Associate Dean for Faculty and Research; Herrick Professor of Business, Ross School of Business

University of Michigan

A shared commitment to solving complex problems

 

On the business side of things, Dr. Hopp and Dr. Lovejoy believe there are many more principles from industry that can be applied to improving healthcare. On the clinical side, Dr. Myers has seen the application of business principles in action and is a firm believer in the positive difference they can make in labs. He appeals to all of us to embrace these principles as a means of overcoming today’s operational challenges.

"While business may have a somewhat negative connotation in medicine, I think we have to evolve past that and understand that there are principles—many of which were unknown to me until we got to work together on the book—that when appropriately applied solve a lot of these problems."

Jeffrey Myers, MD, PhD

Vice Chair for Clinical Affairs & Quality; Director, MLabs

University of Michigan Health System

Contributing Lab Leaders

Bill Lovejoy

Professor of Operations Management

University of Michigan Ross School of Business

Jeffrey Myers, MD, PhD

Vice Chair for Clinical Affairs & Quality; Director, MLabs

University of Michigan Health System

Wally Hopp, PhD

Senior Associate Dean for Faculty and Research; Herrick Professor of Business, Ross School of Business

University of Michigan

Other LabLeaders Financial resources  /